Teaching Kids About Money

Being a parent is one of the greatest honours anyone can have, but it comes with great responsibility. If you manage to raise and teach your kids properly, you can set them on the path to financial freedom and happiness for a lifetime. If you fail them—you’d better get that spare room fixed up.

Ever since I was a child I looked up to my dad, so I know how important it is to be there for my children in every way possible, especially when it comes to teaching them about managing their finances. It’s never too early to speak to your kids about money. As soon as they understand that they can use money to buy things, they’re ready to learn how to best manage it and how to earn it.

Even though my father was awesome, there were many things he didn’t know or never took the time to teach me, and so I’m making it a point to teach my kids so they can avoid some of the mistakes I had to learn the hard way. I want my children to be financially independent before they become adults and you should consider the same. The fact is, as a father of four, I cannot support my children forever; nor do I want them to have to support me down the road.

Here are several of the most important concepts I’m teaching my kids about money to help ensure that when they move out on their own, they’re out for good, able to live a comfortable life free of financial stress and the emotional problems it can cause them and their relationships.

Put Your Money to Work

The first and probably most important concept I’m teaching them is that you can either work for money or have money work for you. I have taught them that if they constantly spend everything they make and don’t save, they will always have to work. If, however, they save 10% to 20% or more of everything they earn, that money can make them much more money without them having to lift a finger. I use every occasion possible to remind them of this lesson. For example, when taking them on fishing trips I explain that I could be working right now if I had spent all my money, but instead I’m fishing with them. My money is working to make me more money while we fish.

The Value of a Dollar

The second life lesson I stress is if they want something, they must pay for it themselves by working for it, and there’s always something else that their money could buy. By teaching them this concept, they begin to understand the value of a dollar and what it means to own something they’ve worked for. They truly care more for their games and toys when they pay for them with their own money.

Moreover, they know in order to buy one thing, they give up the opportunity to buy something else and that the money they spend can no longer work for them. This helps teach them to delay satisfaction and opportunity cost. By teaching them to control their impulses and be patient and thoughtful with their purchases, they gain self control and are happier.

When I was younger, my dad would always holler at me and my siblings to turn off the lights, close the door and so on, but he never explained why this was important. When I tell the kids to turn off the lights, I explain that not only are we wasting energy, we are wasting money that could be spent taking a holiday and or buying new things we want. The same is true with wasting food. When we can relate to our children how their waste directly affects the money we have as a family to do things, they start to care more — and are happy to point out what they’re doing to help out.

Sticking to Goals

Finally, I’m teaching my kids the importance of going to school and also setting financial goals and sticking to them to be able to buy nice things when they get older. While we are driving through various subdivisions in our community the kids can see huge differences in the homes people have and the cars people drive. I point out that to drive the nicer cars and live in the more expensive homes people must make sacrifices and set different savings goals. I explain how going to school and doing well and going to college will help them achieve greater paying positions. However, I explain that it doesn’t matter how much money they make if you don’t save any because they’ll always have to work and won’t be able to enjoy any of the nice things they buy.

Once my children enter high school, I will begin to teach them about managing credit with care, saving and investing for college and their first home, and ultimately helping them setup an investment plan for their retirement. Personal finance is not and should not be a mystery; it’s actually very simple and can be taught at an early age. Although my children might not completely understand everything I’m telling them now, it will help them down the road, and I won’t have any 40 year old kids sitting on the couch in my basement playing video games.

Mark is a Professional Accountant and writes about personal finance on his website FinanceDad.com